Attack of the startup clones: How copycat companies are changing the tech industry

Lately, much ado has been made about one of the perils of the startup business – clones. These lookalikes spy a popular Web platform, analyze it, find another market ripe for such a service, and launch a copycat company. They are known for how quickly they can build their clones and how well they execute. Their goal: to ramp up and then sell the company for a profit.

Nobody likes a copycat, for obvious reasons. We don’t like to have our most brilliant ideas commandeered by others and we don’t like when it happens to startup services we use or follow. It’s a problem that seems, on the surface, very black and white: clones are the criminals, stealing good ideas just to make money, and startups are the victimized artists who… well… always want to make money. Somewhere along the line, we’ve put founders on a saint-like pedestal, and that distinction may have led us to over-sympathize with them in the war against clones. But is this actually a big problem, and are those behind clones really bad people?

The European clone armies

Alexander, Marc, and Oliver Samwer are the three German brothers behind the infamous incubator Rocket Internet. They first found success by investing in startups like StudiVZ, also known as the German Facebook. They are also the minds behind German auction site Alando, sold to eBay in 1999 for $54 million, and mobile content platform Jamba!, which sold to Verisign in 2004 for $273 million.

All three hold graduate or business school diplomas and impressive scholarly backgrounds. They’ve also (to varying degrees) been involved in the Silicon Valley startup scene and profited handsomely from an early investment in Facebook. They are unarguably intelligent, business-minded, and tech-savvy, but many consider them to be nothing more than sleazy mimics that clone credible Web startups and rake in the millions. They are basically known as the house flippers of the Internet.

Examples of their most obvious work are littered through this article.

Internet heavyweights like Airbnb, Pinterest, Amazon, Fab, and Groupon have all fallen victim to the Samwer brothers and their incubator Rocket Internet – and Square’s next: a new venture called ZenPay is on its way. They’ve become the face of the startup clone machine, although they are hardly the only ones involved. Russian-based Fast Lane Ventures has also indulged. It’s home to PinMe – one guess what that is – and a Zappos clone it sold to another larger Zappos clone called Sapatos (meta, right?). It’s quite common overseas; in fact a German founder told me that while he decided to pursue his own idea, he was advised several times to instead create a clone because “it would be safer.”

Complexities of the startup ecosystems

The basic idea, in the crudest sense, is that one of these “clone factories” sees a popular new startup doing well, recruits a team to quickly replicate the business model for a currently non-existing market, and then rides the popularity of the site until it sells for millions.

These non-existing markets come with their benefits. Southeast Asia is becoming a hot destination to launch cloned startups because it’s ridiculously affordable to start a company there. It’s been the origin of many of Rocket Internet’s latest creations, including Wimdu, Pinspire, and Mizado – it’s been cheap for them and good for the region’s job economy. And recruiting stateside developers is always an option, seeing as the conversion rates tip generously in our favor and you can make more and live for less.

These clones rarely go head-to-head in the same market – you won’t see the Samwer brothers (or anyone else for that matter) launch a Pinspire-level copycat in the US. “They strip it down, do it cheaply, and do it well with experienced people and put it in these industries where there’s currently nothing of the kind,” Adler explains.

This bullish attitude can partially be attributed to the ecosystem. As Oliver Samwer once said: “Our problem was we wanted to be entrepreneurs first, then had to find an idea.” The overseas startup culture is incredibly different: it’s much riskier and there’s a drive to simply build better and build faster – but there’s no requirement to be original. Or at least that’s the general consensus.

But they aren’t all like that. “We have joined the accelerator program Le Camping and meet startups with truly original ideas and well-executed services,” Guillaume Martin, CEO of French startup Pictarine, tells me. He characterizes the French startup climate as small but growing. “The difference is made in the amount that is invested to accelerate new products,” he says. “France has major leaders, especially in e-commerce. In France, it is impossible to get a Twitter-like company because we are lacking early-stage investments and perspectives of exits for B to C startups. All these startups are moving to the US, and that is what we [Pictarine] are doing right now.”

“But still there is hope, because two years ago, there were nearly no startup events in Paris, and only a few startups,” adds Martin. “Now you can enjoy several great events every day and meet with hundreds of startups.”

Still, he admits that the lure of the US startup ecosystem is tempting.

I asked Martin what he would do if Pictarine were somehow spun off into a copycat version. “First, we have a special identity thanks to our design that our users love,” he tells me. “We deeply think that it prevents us [from being] copied. [We also] believe that the value of a startup is directly linked to how deeply its founders understand their users’ community. That is something that cannot be stolen easily.”

Ideas aren’t safe here

While so many are quick to condemn, those on the inside of the startup market generally take it in stride – largely, because they don’t have a choice. “You cannot protect an idea,” says Adler. He echoes what we’ve heard applied to the Internet time and time again: everything is derivative. Adler explains that while a handful of things you could sue these clones for do exist, including trademark or copyright infringement, or illegal use of some sort of process a site or application has patented, meeting these conditions can be incredibly difficult.

Looking at Wimdu and Airbnb, or Bamarang and Fab, you might think that the extremely similar design and very familiar text would be enough to litigate – but you’d be wrong. If it’s not identical, you’re likely out of luck.

And there are bigger hurdles than that. “It can be a challenge to sue internationally for a variety of reasons, the least of which is cost,” Adler says. Startups are called startups for a reason: they are young companies and for the most part they are dependent on investors’ money. They don’t have the capital to throw around in court.

Back in 2009, Facebook sued StudiVZ. The site was an out-and-out clone of the early Facebook, and Mark Zuckerberg and co. sued on the grounds of intellectual property theft. Facebook lost – badly. The judge on the cause basically tore Facebook’s lawyers apart for their shoddy guesswork. It’s a perfect example that with all the name recognition in the world and a formidable case (StudiVZ was even accused of stealing source code), it’s still incredibly hard to win in these situations.

It also goes against the grain. Adler says this type of lawsuit would be “counter to the startup culture.” It’s not in an innovators nature to sue an innovator – even one happens to be copying the other. A relatively laid back attitude about cloning startups seems the most common reaction amongst founders themselves – it’s outsiders and pundits who get the most riled up. But those closest to the matter are rather accepting of this environment and all its implied tangles.

Tom Byron, Director of Content and Communications with LiveJournal, which is owned by Russian media giant SUP, explains that the choice to litigate against copycats can go either way. He points to Facebook’s ill-fated issues with StudiVZ, which made it much harder for the site to take off in certain European countries, including Russia. “On the other hand,” he says, “LiveJournal has a handful of clones that have never become big, [so] we never took any action against them because there was no threat for us.”

And so the cycle continues.

The morals of copying the Web

Clone defenders cling to the idea that very little of the Internet is actually original. And thanks to recent controversies over Web content rights, the idea that everything is derivative of something is ever-present.

As these things usually go, the black and white of the issue is hugely overshadowed by a massive gray area. While first inclination is to hear “copycat” and “clone” and associate this entire racket with ner’do wells, think about it solely from a user perspective. The consumer market is being inflated with new options; say you don’t find what you needed on Amazon but Mizado happens to have it. It’s a user win – consumers benefit from choice, even if that choice is coming from a copycat.

“It’s a free market out there. People can do what they want,” VC Fred Wilson recently wrote. “That’s even more true [sic] globally. If you are successful, you will be cloned. That’s life. In fact, it’s a sign that you’ve made it when clones of your website, mobile app, and business start cropping up.” He also admits that all that being true, he is “not a fan of this behavior and approach to making money. It is devoid of creativity. It doesn’t inspire me.”

Regardless, there are plenty of startups that feel slighted by the practice. Fab, as you see above, is one of the most recent sites to fall victim to the Samwer brothers’ copycat practices, and it isn’t happy about it.

“The worst offender is a new company, Bamarang, operating out of the UK and Germany from the infamous Rocket Internet – Samwer brothers,” wrote CEO Jason Goldberg wrote on his blog. “The site is not just a copycat, it’s frankly just stealing our unique Fab design elements. Let me put Bamarang and the other copycats on notice. Ripping someone off is not going to work in this space. Knock-offs are just bad design. Users will see right through it. Such tactics may work in some industries, but not in design.”

The Fab crew are hardly the only ones up in arms over this trend. “The Samwer brothers are despicable thieves,” Jason Calacanis once tweeted. “How do they sleep at night? Who are their LPs?”. At the TWiST Berlin Show last month, Calacanis again echoed this, calling them “photocopying thieves.”

You can’t blame anyone involved in this industry for their anger. They’re doing all the early grunt work and then someone up and rips them off, learning from their early trial and error and executing their ideas more efficiently. And even when litigation is justified, it’s incredibly difficult to pursue. The preferable route is simply to be the better product and in a sense “take the higher road” – though that’s going to do little to placate the afflicted parties.

Startups also need to note whether or not the clone in question is penetrating a market it wants — and, in that case, be watchful. Adler says it’s worth considering for a variety of reasons – patents, business connections, investors. He offers an example: “If it’s a profitable and/or growing business and can be folded into the original startup’s existing structure in an efficient manner… if it’s a logical fit for expansion and the business’ future plans.”

Parasite, meet host

This all puts startups in a rather powerless position. There exists a rather parasite-host relationship between Web companies and their clones, and this cycle wherein the idea flow can potentially better the business being copied. “It can be an advantage to the system,” says Adler. “Rocket Internet could say ‘look we’re actually helping these companies.’”

“The only reason why they exist and why companies are buying them is because they’re doing a good job in scaling.”

That they are. Companies like Rocket Internet and Fast Lane Ventures build, build fast, and pivot well. For the most part, they are driven toward being acquired and lining their investors’ pockets, which has some interesting benefits worth considering. It spurs the market; it encourages venture capitalism. No doubt, you need to go big picture to see any benefits here – job creation, international visibility, entry into new markets, growth of global venture capitalism, renewed interest in accelerator programs. These are all good things, but the question is: Do they outweigh the victimization of startups being cloned, and more importantly are copycats hurting their innovation?

“I think there’s room in this world for both to exist. The question would be which is better,” says Adler. It’s definitely a parasite-host relationship, and there’s the chance it will be like ringworm – sucking you dry and benefiting off of your until there’s nothing left. But what about those tiny fish that eat yet tinier particles off other fish, effectively cleaning them?

The likes of Rocket Internet and Fast Lane Ventures are an occupational hazard: if you’re a Web startup, you run the risk of being copied and then hedging your bets on your own success or trailing the clone to see if it’s a beneficial acquisition. You either need to be better or have enough money to pocket the platform – which isn’t exactly as much like ransom as it might sound. You definitely get something for your money: new users, exposure in the market, potential patents. But that acquisition itself can be a risk; purchasing Alando was a benefit for eBay, but Groupon’s acquisition of CityDeal was a mixed bag, and international expansion has been a challenge for the company. Marc Samwer was actually just fired by Groupon from his chief of overseas operations position.

Your gut tells you to hate the clones, that the likes of the Samwer brothers are the bad guys. You can hem and haw around the ethics of the system, but all’s fair in love and entrepreneurialism. And part of the reason so many of us get riled about this is that we see startups more as creative entities and less like businesses. They are the artists of our age, taking the Internet and new technology and making interesting, beautiful, interactive things out of them. When artists are victimized, it’s natural to want to fight for them – in a “stand up to the man” sort of way.

But clones aren’t the man, and startups are businesses – business that also want to make money. And as frustrating as it might be, you can chalk it all up to being the nature of the beast.